Amazon wholesale profit margin and ROI: what's good, with the math

Most wholesale buying decisions come down to two percentages, ROI and margin, and a lot of confusion comes from mixing them up. A supplier says the margin is great, a scanner says the ROI is 45%, a course says never buy anything that won't double your money, and none of them are talking about the same thing.

Once you know what Amazon takes from each sale (stage 3 of the Amazon wholesale roadmap), the next question is what's left for you. This guide shows how each number is worked out, what we'd call good and why, and how to turn a target return into the most you can pay a supplier. The ranges here are rules of thumb with the reasoning behind them, not measured industry data, so you can adjust them to your own products.

Profit, ROI and margin: three numbers, three questions

Every one of these starts from the same place: what Amazon pays you for a sale. That's the selling price minus Amazon's fees on it. For an FBA wholesale seller those are mainly the referral fee, a percentage of the price that depends on the category, and the FBA fulfillment fee, which depends on the product's size, weight and price. Our fees guide walks through both on a real sale.

From that payout you subtract your landed cost: what one unit cost you by the time it was in Amazon's warehouse and ready to sell, including freight, prep, labels and shipping to Amazon. What's left is your profit per unit.

One real listing, three numbers

Here are all three on one real Amazon listing, from the panel our Apex for Amazon Sellers extension adds to a product page. The product is a Victorinox multitool that was selling for $190.00 when we took the screenshot. The price will have moved since.

Amazon's fees left a payout of $156.01 a unit. With a cost of $114.90 and no prep or shipping added, that leaves:

• Profit: $156.01 minus $114.90 is $41.11 a unit.
• ROI: $41.11 divided by $114.90 is about 36%.
• Margin: $41.11 divided by $190.00 is about 22%.

Same profit, two very different percentages. ROI is the bigger one because on a profitable product your cost is smaller than the selling price, so the same profit divided by a smaller number comes out larger.

Turning margin into ROI and back

Because both start from the same profit, you can convert one into the other if you know what share of the price your landed cost takes. ROI equals margin divided by that share. On the multitool, cost was about 60% of the price, so a 22% margin became a 36% ROI.

This is why a supplier quoting "40% margin" and a scanner showing "40% ROI" are describing very different deals. Ask which one before you compare anything.

What is a good ROI for Amazon FBA wholesale?

Amazon doesn't set an ROI target for sellers, and the numbers you'll find online are rules of thumb from sellers, coaches and tool makers. Here's ours for wholesale, with the reasons, so you can bend it to fit your products and your cash.

• About 20% ROI can be enough on a product that sells fast, holds its price and leaves a solid dollar profit per unit.
• 30% or more on most other buys.
• Well above 30% on slow sellers, seasonal stock, listings where the price swings, and anything you're buying for the first time from a supplier you don't know yet.

Why a floor around 20%? Below it, there's very little room for anything to go wrong. Take a product whose landed cost is half the price: 20% ROI is a 10% margin there, and a price drop of a little over 10% wipes the profit out. Prices can move that much when a new seller arrives or the season turns.

Why not the double-your-money target you may have read about? Wholesale is a different trade from clearance buying. You pay a distributor's price for a product that already sells at close to its normal price, so the return on each buy is lower. In exchange, you can reorder the same product from the same supplier month after month, and that repeat return is where wholesale profit comes from.

Stef, who teaches Apex University, sets his first filter as a dollar amount and a percentage together. On one supplier's personal care list in his Purchasing lesson, he filtered for at least $1.50 profit and 20% ROI, because those items cost little and could sell hundreds of units a month, and he suggested keeping the dollar floor around $1.50, or even $2, on a list like that (Purchasing, at 5:38). That was his setting for that list, not a benchmark for every product.

When to ask for more, and when less is fine

Our guide to products to avoid in Amazon wholesale covers the listings where no ROI makes the buy safe.

A dollar floor matters as much as the percentage

A percentage on a cheap product can be pennies. A 30% ROI on a $3.00 landed cost is $0.90 a unit, and one return, one small price cut or a few extra months in storage can take most of it. That's why a minimum dollar profit sits beside the ROI floor, as it does in Stef's filter. Higher-priced products can earn real dollars at a lower ROI, but each unit ties up more of your cash, so the percentage still has to clear your bar.

Speed changes what a good ROI is

ROI measures one round: you pay the supplier, the stock gets prepped and shipped to Amazon, it sells, and Amazon pays you. That last step isn't the day of the sale either. Our payouts guide explains how DD+7 and Amazon's settlements set the timing. The faster the whole round turns, the more times a year the same dollars can earn their return.

Here's the math on two made-up products, each with the same $1,000 to spend:

Product A has the lower ROI and puts more profit on the same money, as long as it keeps selling at that price and you keep reordering it. More rounds also means more purchase orders, more shipments and more of your time, so this isn't a reason to chase cheap, fast products with thin margins. It's a reason not to reject a fast seller only because its ROI looks modest next to a slow one.

"Sometimes sacrificing high profit margins could also mean getting more money because of how fast an item is selling."

From Stef's lesson (Purchasing, at 9:05)

In that passage he's weighing a product whose price had dipped against its rank, which told him it sold a few hundred units a month. To plan how much to buy and when, see when to reorder on Amazon.

What is a good profit margin for Amazon wholesale?

Margin is your cushion. If the price falls, the margin is roughly how far it can fall before the sale stops making money. In fact the price can fall a little further than your margin, because the referral fee is a percentage of the price and shrinks as the price drops. On the multitool, the 22% margin meant the price could fall about 25%, to the panel's break-even price of $141.64, before each sale made nothing.

Our rule of thumb, for margin after Amazon's fees and your landed cost: 15% or more on most wholesale buys, and a hard second look at anything under about 10%. Under 10%, an ordinary dip of a little over 10% takes the whole profit, and so can a fee increase on a low-priced product.

Gross margin, margin after fees and net margin

The word "margin" gets used for three different numbers, and they can be far apart.

1. Gross margin, in the usual accounting sense, is the price minus what the product cost, before Amazon's fees. On the multitool that's $190.00 minus $114.90, or $75.10, about 40% of the price.
2. Margin after Amazon's fees and landed cost is the margin Apex's scanner, the extension and our calculators show. On the multitool, 22%.
3. Net margin comes after everything else too: storage, returns, ads, software, your prep center's monthly charges, and the rest of your overhead. You only see it on a profit and loss statement, and it's lower again.

Those are gross margins, before Amazon's fees. So when a supplier, a course or a tool quotes you a margin, ask which of the three it is before you compare it with anything else.

Wholesale's lower range, next to private label's, comes with the model. Stef says as much in his first lesson: wholesale "is lower margin, but still profitable," and he describes it as a model that keeps cash flowing rather than one that builds a brand you can sell later (The Game, at 4:46). For how margins and trade-offs compare across models, see wholesale vs private label and online vs retail arbitrage.

The most you can pay for a target ROI

Once you know the return you want, you can work backward from the selling price to the highest price you can pay the supplier. This is the number to have in your head before you open a price list or call a sales rep.

1. Pick the price you expect to sell at

   Use the lower of today's Buy Box price and its recent low, not the best price the listing has shown. Our guide to reading Keepa charts shows how to find it.

2. Work out what Amazon pays you at that price

   Take off the referral fee and the FBA fulfillment fee. Amazon's Revenue Calculator or our free FBA calculator (3 free lookups, then sign in with a plan) gives you both.

3. Divide by one plus your target ROI

   For a 30% target, divide by 1.30. For 20%, divide by 1.20. The result is the most your landed cost can be.

4. Subtract your other per-unit costs

   Take off freight, prep and labels, shipping to Amazon and any inbound placement fee per unit. What's left is the most you can pay the supplier for one unit.

On the multitool, the payout was $156.01. Divided by 1.30, that's $120.01, which is the panel's "Max cost for 30% ROI" line. If prep and shipping came to $2.00 a unit (a made-up figure for the example), the most you could pay the supplier is $118.01. At a 20% target it would be $156.01 divided by 1.20, minus $2.00: $128.01.

When the supplier's price is above your number, you have three choices: ask for a better price, plan on a higher selling price only if the listing really supports it, or walk away. Our guide to negotiating with distributors covers the first one. Never close the gap by quietly lowering your target on a product you haven't sold before.

Check it at the low price, not the high one

A listing selling at an all-time high today makes every number look better than it will be. Stef's tip, once a purchase order is built, is to check it against the 30, 60 and 90-day average prices too, to see whether the order still works "even when it's at the lowest point" (Purchasing, at 30:56). The extension panel above shows the 30 and 90-day averages beside today's Buy Box price, and a Keepa chart shows how low the price has gone. If the return only clears your bar at today's price, treat that as a no or a much smaller test order.

The calculator below does the math both ways. In "Profit at my cost," type what you pay the supplier to see profit, margin and ROI. In "Most I can pay," type the return you want to see the highest supplier cost that still reaches it. It reads Amazon's referral fee table for the category you pick; type the FBA fulfillment fee from the Revenue Calculator, and your prep and shipping per unit.

This calculator works out ROI on what you put into the unit: the supplier cost plus the prep, shipping and other costs you type. Our standalone profit calculator also counts the FBA fee as part of your cost, so its ROI reads a little lower for the same product. Both are fine. Just use one of them for every decision.

Why your real ROI comes in lower than the first pass

The ROI on a scan or a quick calculation is a best case, and two things keep it from matching what you earn.

What sits at the bottom of the fraction

ROI depends on what you divide by, and tools don't agree. Some divide profit by the supplier cost alone. Some use landed cost. Some add the FBA fee to the cost. Some work at today's Buy Box price and some at an average. The same product can show 45% in one tool and 32% in another, and both can be right.

Pick one definition and use it everywhere: in your filters, your purchase orders and your reviews after the sale. If you compare a scan worked out on supplier cost with a target you set on landed cost, you'll buy products that miss your target without ever seeing it.

Costs the first pass leaves out

• Freight, prep and inbound fees. Prep and labels are a cost on every unit, whether you, your prep center or your supplier does the work. Our guides to landed cost, FBA prep requirements and the inbound placement fee cover what to add.
• Storage, and aged stock. Amazon charges storage every month for the space your units take up, and slow stock costs more the longer it sits.
• Returns. A returned unit can come back unsellable. If a product gets returned often, build an expected return rate into its numbers.
• Price drops and new sellers. A stable price today doesn't promise a stable price through the months it takes to sell your order. Our Keepa guide shows what a price war looks like before you're in one.
• Ads and overhead. Advertising, software and your prep center's monthly charges come out of net margin, not out of any one product's ROI. They're why a business with healthy per-unit margins can still end the month with little left.

Our storage fees guide explains how both are worked out.

Keep checking the numbers after you buy

The margin you planned on is a forecast. The margin you earn shows up in your sales, refunds and fees after the units sell, and the two drift apart quietly: a price that slips a little each week, a fee change, a few more returns than you expected.

A simple habit catches it. On a regular schedule, compare each product's real profit per unit with what you planned when you bought it. When a product falls below your floor, find out why before you reorder, and either fix the cause, reorder less, or stop buying it. Our guide to Amazon FBA bookkeeping shows how to set up the books so that comparison is possible.

Where Apex shows these numbers

• Apex Green matches a supplier's price list to Amazon and shows each match with its landed cost, Amazon price, Amazon's fees, profit at the Buy Box, ROI and margin, so you can filter a list by profit and ROI before you look at anything one by one. Its numbers use the cost in your file plus the shipping you set.
• Apex Blue shows landed cost, projected profit and ROI on each purchase order, and a profit and loss statement with gross profit and, after the operating expenses you enter, net profit.
• The Apex for Amazon Sellers extension puts profit and ROI on Amazon's own search results when Apex knows your cost, and the most you can pay for your target return when it doesn't. It's free to install, and its numbers open when you finish Apex University.

When you're ready to run all of this on a real supplier's list, our guide to analyzing a wholesale price list takes it one check at a time.